Labour Codes 2026: What Employers Must Change in Hiring

Where things stand in October 2026

The Code on Wages 2019, the Industrial Relations Code 2020, the Code on Social Security 2020 and the Occupational Safety, Health and Working Conditions (OSH) Code 2020 all took effect on 21 November 2025 ¹. During the transition, rules under the old labour laws continue to apply where they are consistent with the codes ¹³⁴.

Final central rules under all four codes were notified on 8 May 2026 ⁶⁷. They apply where the central government is the "appropriate government"; most private employers are governed by their state's rules ⁵.

States are moving at different speeds. As of May 2026, only a handful of states and union territories had final rules under all four codes ¹⁶, and more have followed since, including Rajasthan's OSH rules from 30 June 2026 and Andhra Pradesh's OSH rules in August 2026 ¹⁷. Check the position in each state where you employ people.

The new definition of wages and the 50% rule

All four codes now share one definition of "wages" ²¹. It includes basic pay, dearness allowance and retaining allowance, and excludes items such as bonus, employer PF contributions, conveyance, house rent allowance, overtime and commission, as well as gratuity and retirement benefits ⁸.

The key change is a proviso: if most of the excluded payments (all except gratuity and retirement or retrenchment benefits) add up to more than half of total remuneration, the amount above half is added back into wages ⁸. According to the Ministry of Labour's FAQs, performance incentives, ESOPs, variable pay and reimbursements are not part of wages, and leave encashment is not treated as an allowance ³.

Because the same wage base is used for gratuity and social security ², salary structures with a low basic and large allowances now produce higher statutory costs than before. As of July 2026, the 50% figure had not been changed by notification ²¹.

Provident fund: a higher wage ceiling

The Cabinet approved raising the wage ceiling for provident fund coverage from ₹15,000 to ₹25,000 a month ¹⁴, and the change took effect on 17 September 2026 under notification S.O. 5109(E) ²².

New EPF, EPS and EDLI schemes, replacing the earlier provident fund, pension and deposit-linked insurance schemes, were notified on 29 June 2026 ¹⁷. Offer letters and CTC calculators that assume the old ₹15,000 ceiling need updating.

Gratuity: what changed and what did not

For permanent employees, the five-year qualifying period for gratuity is unchanged ¹⁰. Gratuity is still 15 days' wages for each completed year of service ¹⁰, and the ceiling is ₹20 lakh ³. The Ministry's FAQs confirm that the codes' gratuity provisions apply from 21 November 2025 ³, and because gratuity is a statutory benefit, the new definition of wages feeds into it ².

Fixed-term employees are eligible for gratuity after one year under the contract ¹¹, and the five-year condition does not apply when a fixed-term contract expires ¹⁰. The central rules treat more than six months of a year as a full year ⁶. Under the central rules, gratuity is payable within 30 days of receiving the application, and nominations are due within 90 days of an employee completing one year ²⁰.

Fixed-term employment

The Industrial Relations Code defines fixed-term employment and attaches a condition of parity: a fixed-term worker's hours, wages, allowances and benefits must be no less than a permanent worker doing the same or similar work, with statutory benefits in proportion to service ¹¹.

The model standing orders issued in 2026 confirm that the end of a fixed term is not retrenchment, and set probation at six months, extendable by up to three months ¹⁸.

Appointment letters are now mandatory

Every employer must issue a letter of appointment to every employee on appointment ¹². Employees who did not have one when the OSH Code came into force had to be given one within three months ¹². The central rules prescribe a format that records the type of employment (regular, fixed-term or contractual), the skill category and the employee's UAN ⁶.

For recruitment teams, this means offer letters and appointment letters should be reviewed together: the appointment letter is now a statutory document, not just an HR formality.

Final settlement within two working days

When an employee resigns, is removed or dismissed, or is retrenched, the wages due must be paid within two working days ⁹. The government can prescribe a different time limit ⁹.

Gratuity follows its own timeline, counted from the employee's application ²⁰. Whether leave encashment falls within the two-day rule, and whether unserved notice pay can be recovered from final wages, are both open to argument ¹⁵. Companies whose full-and-final process runs over weeks will need to redesign it.

Other changes HR teams should know

• Working hours: no more than eight hours a day, with overtime paid at twice the wage rate ¹². The central rules cap overtime at 144 hours a quarter ⁷.
• Women may work at night in all establishments, with their consent and subject to safety conditions ¹²².
• Standing orders apply to establishments with 300 or more workers ¹¹, and the threshold for needing government permission to retrench or close is also 300 ¹¹².
• Retrenched workers receive 15 days' last-drawn wages through a re-skilling fund ².
• Gig and platform workers: aggregators contribute 1% to 2% of annual turnover to social security, capped at 5% of what they pay gig and platform workers ¹³. Workers qualify after 90 days with one aggregator or 120 days across several in a year ¹⁹.

What the codes do not change

None of the four codes sets a notice period for resignation or deals with non-compete clauses. Both remain matters of contract. The codes' notice provisions deal with retrenchment and closure by the employer, not resignation ¹¹.

A checklist for HR and talent teams

Our suggested order of work, based on the changes above:

• Re-run your salary structures against the 50% rule and update CTC calculators for gratuity and the ₹25,000 PF ceiling.
• Update your offer and appointment letter templates to the prescribed format, including employment type and UAN.
• Review fixed-term and contract roles for pay parity and one-year gratuity.
• Redesign full-and-final settlement so wages can be paid within two working days of the last day.
• Track the rules in each state where you have employees, not only the central rules.

This is not legal advice

This guide summarises published law, government FAQs and law firm analysis as of October 2026. Several points are still being interpreted and state rules differ. Take advice from an employment lawyer before changing contracts or pay structures.